IMF warns of world recession

THE INTERNATIONAL Monetary Fund (IMF) yesterday sharply cut its projections for world economic growth and warned there was a risk of a global recession.

It said the US and the euro area both needed to consider "a moderate easing of monetary policies" to help to mitigate the global crisis.

According to the IMF, the global economy will grow by just 2 per cent this year and 2.5 per cent in 1999. In May, the IMF forecast that world economic growth would be 3.1 per cent in 1998 and 3.7 per cent in 1999.

World economic growth will be more balanced next year, the IMF says, with some modest recovery in Asia but a downturn in the hitherto buoyant economies of the US and western Europe.

The IMF warned that there were "predominantly downside risks" to its new growth projections, which are still significantly more optimistic than many City forecasts.

The risks of worse-than-expected economic growth would be particularly great if "the acute pressures on financial flows to emerging economies persist", according to Michael Mussa, IMF economic counsellor and director of research.

The global crisis has so far cost $600bn to $800bn in terms of income forgone, according to the IMF. This is approximately equal to an economy the size of Canada "taking the year off", Mr Mussa said.

Although the IMF is not predicting a global recession - which it defines as world annual economic growth of 1 per cent or less - this nevertheless remains a risk.

Mr Mussa said global recession was an unlikely outcome but it was not impossible.

The IMF predicted most Asian economies would start to recover next year. The Japanese economy, for example, is forecast to grow by 0.5 per cent in 1999, after contracting by 2.5 per cent in 1998.

However, the economies of US and western Europe, which have to date been relatively unaffected by the market turmoil, will start to turn down.

The UK economy is forecast by the IMF to grow by 1.2 per cent in 1999, considerably less than forecast by the Treasury, and the second lowest growth forecast in the G7.

The IMF - which is not forecasting an outright recession in the UK - said the slowdown reflected "a tightening of monetary and fiscal policy".

The IMF urged the 11 European countries participating in the first wave of Economic and Monetary Union to tighten fiscal policy, but said there was room for manoeuvre on short-term interest rates.

Mr Mussa attacked the suggestion that the IMF only ever advocated a tightening of monetary and fiscal policy as "nonsense". He said the fund was advocating tighter policy for only 10 per cent of the world's economy.

Start your day with The Independent, sign up for daily news emails
ebooksAn unforgettable anthology of contemporary reportage
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Digital Optimisation Executive - Marketing

£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

Recruitment Genius: Financial Reporting Manager

£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

Recruitment Genius: Payments Operations Assistant

£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

Recruitment Genius: Telephone Debt Negotiator

£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

Day In a Page

Sepp Blatter resignation: The beginning of Fifa's long road to reform?

Does Blatter's departure mean Fifa will automatically clean up its act?

Don't bet on it, says Tom Peck
Charles Kennedy: The baby of the House who grew into a Lib Dem giant

The baby of the House who grew into a Lib Dem giant

Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

The harrowing testament of a five-year-old victim of Syria's endless civil war

Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
The future of songwriting: How streaming is changing everything we know about making music

The future of songwriting

How streaming is changing everything we know about making music
William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

Recognition at long last

Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
Beating obesity: The new pacemaker which helps over-eaters

Beating obesity

The new pacemaker which helps over-eaters
9 best women's festival waterproofs

Ready for rain: 9 best women's festival waterproofs

These are the macs to keep your denim dry and your hair frizz-free(ish)
Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

Wiggins worried

Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
Liverpool close in on Milner signing

Liverpool close in on Milner signing

Reds baulk at Christian Benteke £32.5m release clause
On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

On your feet!

Spending half the day standing 'reduces risk of heart attacks and cancer'
With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

The big NHS question

Why are there so few new GPs when so many want to study medicine?
Big knickers are back: Thongs ain't what they used to be

Thongs ain't what they used to be

Big knickers are back
Thurston Moore interview

Thurston Moore interview

On living in London, Sonic Youth and musical memoirs
In full bloom

In full bloom

Floral print womenswear
From leading man to Elephant Man, Bradley Cooper is terrific

From leading man to Elephant Man

Bradley Cooper is terrific